Variance Risk Premium Estimation Across the Equity Term Structure
The variance risk premium (VRP) is the compensation investors demand for bearing variance uncertainty. We estimate the VRP at multiple horizons by contrasting risk-neutral variance expectations (extracted from VIX futures) with statistical forecasts of realised variance. The term structure of VRP reveals time-varying risk aversion and carries information about subsequent equity index excess moves, providing a framework for understanding the pricing of variance across different horizons.
- Horizon-by-horizon VRP estimation from VIX futures and realised variance forecasts
- Analysis of the VRP term structure across calm and stressed market environments
- Assessment of VRP predictive content for subsequent equity index movements